MT: How has International positioned itself to ride out the market downturn so that it can emerge in the competitive shape necessary to take the best advantage of the eventual upturn?Schumacher: Perfo...
MT:How has International positioned itself to ride out the market downturn so that it can emerge in the competitive shape necessary to take the best advantage of the eventual upturn?
Schumacher: Performance in the bottom end of the cycle is a major focus for International. There are a couple of things we have done. Certainly the most cyclical piece of the trucking industry is the Class 8 market. By expanding our engine, small truck, and what we call our severe service business we have grown our business in that part of the transportation industry that is not as cyclical and that has helped us. Our financial performance in 2001 was much better than it was historically when the industry cycled downwards. The other thing that we did is invest significantly in product redesign and new manufacturing processes during the peak of the cycle which positioned us very well in terms of having new product in the marketplace at the bottom end of the cycle.
MT:All truck manufacturers have been placing greater emphasis on leveraging economies of scale to curtail price increases. I assume this is a trend that will continue in coming years. How will this affect motor carriers spec’ing trucks?
Schumacher: I think there are a couple of trends that have been driving this. And one of them is customer driven. I sense that customers are more and more looking to the manufacturers to determine the most reliable componentry out there in terms of giving them a vehicle that maximizes uptime and revenue. And there is the whole manufacturing complexity issue. I think both will continue. The best example to illustrate what we are doing is the 4000 Series High Performance Vehicle that we introduced in February. The same cab and technological advances have since been introduced to the 4400 and the 7000 Series and the 8000 regional haul tractor will also have those same design improvements. In the case of our own engine, we focused on optimizing vehicle performance and one of the ways that we did that is to go with less powertrain combinations. If you are engineering and testing a smaller number of combinations and you can optimize vehicle performance and get the kind of ride characteristics and throttle responsiveness that we were able to put into that product, it really sets it apart. Things like the fact that it actually feels like you are driving an SUV came about because we were able to focus on optimization as well as the tolerances we were able to achieve with state-of-the-art factory tooling.
MT: Should fleet owners expect OEMs to keep a lid on price increases as a result?
Schumacher: Pretty much what drives us at the design and manufacturing level is providing a vehicle that will enhance the value of our customer’s business. You can’t just look at price, you have to also look at performance and uptime and answering the needs of the driver, the maintainer and the owner. We won’t bring product or features to the market place that customers won’t value and pay for.
MT: What else should your customers be getting excited about with the new truck lineup?
Schumacher: Internally, there is the multiplexing electrical system and the advantages in terms of diagnostic time and being able to use our electronic system to also control the allied equipment a customer chooses to mount on the chassis. The interior of the cabs also have improved noise reduction and air conditioning and heating systems. Not only is capacity better but the tightness of the cabs and the manufacturing tolerances they were built to allow us to keep the air in the cab and the noise out to a greater extent than previous. And even when you look at the grille and the hood features, as much as they were designed to be eye catching they are also functional in that the chrome grille can come off with just four bolts. Our three-piece hood means if you bang it up you don’t have to replace the whole hood. Mostly though it is about a new standard for vehicle ride and performance characteristics not seen before in commercial trucks.
MT: Can you outline the reasoning behind the decision to drop Detroit Diesel as one of International’s engine suppliers as of October?
Schumacher: Daimler purchased Detroit and so they were owned by a competitor and that was factor. But certainly there was the issue of optimization of components. At the end of the day it’s how the product is supported to the customer and we feel we can do better than in the past with the agreements we have.
MT:We’ve heard a lot of different estimates in regards to the cost of the new emission-compliant engines. Would you like to take a stab at it?
Schumacher: From a reliability standpoint, it’s not as big an issue as it has been made out to be. The basic systems have been out a long time. EGR is not a new technology. Both the chassis and engine manufacturers knew this was coming and have been in test mode for a sufficient time. There may be a perception issue there but the manufacturing cost and related price increases are real. There are also some benefits to a post-emission purchase such as our new interiors and new wide track axle.
MT:Let’s speak about your dealers. How are they weathering the downturn?
Schumacher: We are fortunate to have a good group of dealers. A lot have been through the cycle before and understand how they need to manage their business through periods like we are in right now. And also because the International dealer has some breadth in terms of product, he has the ability to continue to sell product when the Class 8 sales dry up. They also have been very good through the years in focusing on the parts and service and leasing segment. And we’ve supported them with programs in those areas.
MT:The company has been on record as saying it would like to rationalize the number of dealer principals but increase the number of its locations. Has this process begun in Canada?
Schumacher: Yes it has. It’s more an evolution than a revolution. It will happen over an extended period of time. What we have seen is the smaller operations begin to look at the economies and costs of being in truck sales and become service and parts operations only while others have become a part of a larger dealer operation.
MT: What are your predictions for truck sales in Canada for this year?
Schumacher: I think Class 8 will be above 2001 levels in the 10-15% range. From an International perspective we did about 2,900 Class 8s last year and we are looking at something in the neighborhood of 3,200 or 3,300 this year. Medium looks like it will be about the same as 2001 for us even though the overall industry is less than expected. I think the carriers are doing better. The amount of freight being hauled is good but there is still that uncertainty that delays that purchasing decision.
MT:How healthy is the used truck market heading into the tail end of the year?
Schumacher: Certainly our new Class 8 inventory is back to a low point in terms of recent years and that has helped the used market. If there is an issue left it’s in the four-year-old highway sleeper with 800,000-1 million km on it. There are still a lot out there. But day cabs and vehicles that still have some miles in before they get into where the first failures typically occur are back to more normal numbers. The price is recovering in that segment of the Class 8 market.
MT:Looking five years into the future where would like to see the Canadian arm of International headed?
Schumacher: I want the customer base in Canada to look at International as the supplier to the transportation industry that does the best job at delivering on three things: exciting the driver, delighting the maintainer and enriching the owner.mt
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